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Wednesday, November 3, 2010

IRELAND NEAR TOP ON TESCO PROFIT LIST

PAUL CULLEN Consumer Affairs Correspondent

RETAIL GIANT Tesco makes greater profits in Ireland than in any other part of its global empire apart from South Korea, according to a new report.

Tesco Ireland’s profit margin will rise in the current financial year to over 7 per cent, despite the economic downturn and the slump in the grocery trade, the report by UK stockbroker Shore Capital forecasts.

The figure is relatively high for the traditionally high-volume, low-margin retail sector. The Irish Ebit (earnings before interest and taxes) margin of 7.2 per cent is the highest in Europe, and compares with 7 per cent in Poland and less than 5 per cent in Hungary and the Czech and Slovak republics. Only South Korea, with a margin of 7.4 per cent, is outperforming Ireland.

Profits in the Republic will reach almost €200 million for the financial year up to February 2011, according to the report prepared for investors. They are then forecast to increase further to almost €285 million by the year 2015.

Tesco, in common with most of its retail rivals, does not provide separate profit figures for its Irish business. It declined to comment yesterday on the figures contained in the report.

Clive Black, an analyst with Shore Capital, said profit margins in the Irish retail trade tended to be high. “It may be easy to hit Tesco over its margins but you need to look at its competitors too.”

Last year, Tesco was aiming to record a gross profit margin of over 9 per cent in the Republic, according to an internal business plan seen by The Irish Times. However, the company then cut the prices of many groceries and switched to direct importation of many lines from the UK in an effort to stem the flow of cross-Border shopping. The strategy ate into profits but paid off in many areas and Tesco now enjoys a 27 per cent market share.